Lease
Options
If you cannot get a seller to deed
you the property, another way to buy it is with a Lease Option, where you lease
the property from the seller with the option to buy.
What Is A Lease Option?
A Lease Options is a "Rent To Own" arrangement, which is simply a lease where the
tenant has the option to purchase the subject property. This tenant is commonly
referred to as a "tenant-buyer" or as some investors like to call
them, "Homeowners In Training".
The Lease Option agreement itself
can be one agreement, or it can be a lease agreement with a separate option
agreement. Basically, Lease Options are another form of seller financing,
similar to an Agreement For Deed.
Control Without
Ownership
With a Lease Option, you as a buyer
can control a property without actually owning it yet. The lease part of the
agreement gives you the right to occupy the property. While the option part of
the Lease Option gives you the right to buy. As part of the lease, many times a
portion of the rent payment is credited towards the purchase price or down
payment. This means that you are occupying the property, the seller cannot
resell it to someone else, and a portion of your monthly payment is going
towards what is owed on your option to buy.
Once you stand back and look at what
you are getting as a tenant-buyer, there is very little difference between a
Lease Option and a seller held mortgage or Agreement For
Deed. In fact, Lease Options are so similar to a seller held mortgage that many
banks consider it as an "installment sale" and will actually let you
refinance.
There are several benefits to getting a refinance loan rather than a regular purchase loan.
- First, you don't have to put a down payment down because down payments are made on purchase loans, not refinance loans. The purpose of any refinance loan is to take an existing debt and roll it into a new loan. As part of most refinance loans, you can also roll the closing costs into the balance. The same is true when refinancing a Lease Option.
- This means that you can move into a property and make monthly payments (which are partially credited to the amount you are purchasing the property for), without being required to put money down or having your credit checked. You can later exercise your option to buy and refinance without being required to put up any money and your closing costs can even be included as part of the loan.
- This is why Lease Options are so popular
among real estate investors for both buying property and for selling them.
Why Sellers Will Do A Lease Option
There are many reasons why a Seller
would consider a Lease Option. Most homeowners don't know the difference
between a contract for deed and a Lease Option. But most are more familiar with
the terms "Lease Option" or "Rent To
Own". Because a seller is somewhat familiar with what a Rent To Own is, they are more apt to consider it as a solution to
their problems.
Sellers Can Get Debt Relief
The key factor to getting most
sellers to do a Lease Option is debt relief.
Your objective is to Lease Option
the property for the amount owed on the mortgage and give
the seller the debt relief they need.
You are going to solve the seller's
problem by taking over the monthly payments, living in the house and
maintaining it until you actually close the purchase of the house. In the
meantime, the seller receives enough money to pay for their mortgage payment,
taxes and insurance, and they no longer have to worry about maintaining the
property.
Also, some
sellers may need to correct their "debt to income" ratio when
buying a new home. They may be moving to another home that they have already
contracted to purchase, or they have built another home and are now faced with
the prospect of having to make two mortgage payments. This may cause the seller
to have a debt ratio problem when qualifying for their new home because they
are still liable for the payments on their old home.
When you as a buyer Lease Option the
house from the seller, the lease payment they receive is considered income and
this offsets the debt of the monthly payment on the old home. Thus, helping to correct the seller's debt ratio problem.
No Due On Sale
Also, when structured properly, a
Lease Option does not violate the due-on-sale clause on the sellers underlying
mortgage.
The fact
that a Lease Option does not give rise to the due-on-sale clause,
may be a determining factor for the seller to do the deal. It may also help you
as the buyer feel more comfortable too.
If you Lease Option the house, the
title does not transfer until after you exercise your option to buy; therefore,
the bank cannot call the loan due. Many due-on-sale clauses do state that the
seller cannot give a lease to someone for more than a two-year term. However,
this does not mean that you can't create a Lease Option with a term of one year
where the tenant/buyer has the right to renew for nine times. In essence, you
would have a ten-year Lease Option that does not violate the due-on-sale
clause!
When To
Lease Option A Property
It is important to know when to
offer a Lease Option to a seller so that you don't short change yourself. You
should only offer to Lease Option a property when you cannot get the seller to
deed you the property "Subject To", give you an Agreement For Deed, or give you a sales price so cheap that you can
pay cash. The reason for this is that both taking a property "Subject
To" and getting an Agreement For Deed, give you a
much higher level of control and ownership than a Lease Option does.
You'll also
want to consider doing a Lease Option if the due-on-sale clause is a major
concern to either yourself or the seller. If the seller truly cares about their
credit, they most likely will not deed you the property "Subject To"
and leave it up to you to make the payments on the mortgage. If they deed you
the house and you don't make the payments as you promised, it is going to show
on their credit and not yours. This is where a Lease Option can save a deal.
What To Do
With A Lease Option Deal
There are four things you can do with a property after you Lease Option it.
You can:
- keep it to live in,
- make it a permanent rental,
- sell it under a Lease Option, or
- retail it to a
homebuyer outright.
Keeping the house for you to live
in, retailing the house and making the house a rental, are all pretty basic
concepts to understand. However, when
you get into sub-leasing the property to another tenant with the option to buy (Sandwich),
things can get much more detailed.
Making Money With
Sub-Lease Options (sandwich)
As part of
your lease agreement you can have the right to sublease the property. This is
commonly referred to as either a "Sub-Lease Option" or a
"Sandwich Lease Option.”
This allows you to Lease Option a
property and then sub lease it to your tenant. It is up to you whether or not
you give your tenant an option to buy. You could keep the property as a regular
rental or you could give the tenant an option to buy and eventually end up
retailing the property for full value.
Don't misunderstand the title of
Lease Options though. This does not mean that you have to buy properties and
rent them out to tenants and have the responsibilities of being a landlord. As
you'll learn in this course, Lease Options are a great alternative to regular
rentals because you can eliminate almost all of the hassles that come with
being a landlord.
Finance Terms Create Value
When you make it easy for a buyer to
purchase a property, that property is worth more because of the terms under
which you are selling it. A house is worth more because it has non-qualify seller financing than an identical house next
door that requires you to qualify at a bank. It's ironic though that most
appraisers ignore financing when determining a properties value.
Properties that are for lease with
an option have a higher perceived value by the tenant-buyer because they are
getting the opportunity to lease a property, build up a down payment, and have
an opportunity to buy the property without having to qualify.
Because of this, when you can create
a no qualifying situation for a homebuyer, you will have no problem selling the
property fast. Not only that, by knowing how to structure deals, you'll be able
to get a higher sales price than you paid the seller and a higher down payment.
Get Up To Three Paydays
When you sub-Lease Option the
property to a tenant-buyer, you can make money at three different times. You
get money today, monthly payments coming in every month, and money at a future
date when the tenant-buyer refinances.
1. The Option Fee
Your first profit center is the
option fee you get from your tenant-buyer because you'll be getting a larger
option fee from your buyer than what you gave the seller (if you gave the
seller any to begin with). This is why you need to get into the property with
the least amount of money as possible.
2. The Monthly Payment Spread
Your second way to make money is in
the difference in the payment spread. When Lease Optioning from the seller,
your objective is to buy the property for what is owed on the mortgage.
However, when selling, you'll want to sell the property for as much as you can.
Usually, rent payments on a house
are more than what they are on a mortgage and of course, when selling, you're
going to charge what the rent rate would be or even higher. You can also add an
extra $100 or $200 that will be due in addition to the rent that is credited
towards the tenant-buyer down payment.
We did say earlier that a
tenant-buyer could refinance a Lease Option and not have to put up a down
payment. However, there is no guarantee that the tenant-buyer will qualify for
a loan high enough to cover the full purchase price or that the bank they
qualify with won't require them to pay some type of money. This is where this
money can come in handy. Also, this money will be non refundable. So if the
tenant-buyer fails to exercise their option for any reason, the extra money
above the regular lease payment would be extra income to you.
3. The Equity Spread
The third payday you get is when
your tenant-buyer exercises their option and buys the property. At that time,
you'll collect the difference between your purchase price with the original
seller and the sales price with your tenant-buyer.
If however, you bought the property
from the seller at a high price and there is not much of a payday coming to
you, you may hope that the tenant-buyer never exercises their option.
Types Of
Properties To Invest In
As for the types of properties you
should target when doing lease options, single family homes in desirable areas
are the best candidates. It is not too hard to find pretty houses in pretty
neighborhoods with sellers that have little or no equity and are looking for a
way out.
Pretty Houses Offer More Profit,
Less Hassles And Less Competition
Your best bet is to deal with pretty
houses in pretty neighborhoods that are owned by private individuals. The
better the neighborhood is, the more likely your tenant/buyer is to exercise
their option and purchase the property. The buyers that are looking for nicer
houses also have more money than those buyers looking for moderate to low
income houses; therefore, you'll tend to get a larger up front profit on nicer
houses.
You will also usually get a larger
spread on the monthly payment and many times a larger back end spread as well,
because of the higher property values. If you are dealing with larger valued
properties, it is only logical that you could get larger spreads.
You will also have fewer problems
collecting payments from buyers in nicer neighborhoods than when dealing with
buyers in a lower income bracket. And because you can get more of the buyer's
money up front, you'll tend to have fewer problems with tenant-buyer walking
out on the deal.
To really make things easier, as you
get into the even nicer and more upscale homes, you will tend to have less
competition from other investors because many other investors are less
sophisticated and may be scared of the larger numbers.
Properties Needing Little Or No Work
You should be targeting properties
that need little or no work. In a minute, we'll talk about doing sandwich Lease
Options on properties that need work. However, most of the
time you'll want to Lease Option properties that need virtually no work.
You don't want to be doing a lot of work and putting a lot of money into a
house that you do not technically own yet and by the property not needing work,
you'll have more potential buyers.
Also, properties that you have
planned to sandwich lease option should be in good to excellent condition
because one of your main profit centers is the difference between the down
payment you give the seller and the down payment you receive from your
tenant-buyer. If the tenant/buyer has to spend money on doing repairs, that is money they won't be able to give to you as
a down payment.
Furthermore, you want to put in as
little money as possible going into the deal. This not only includes the down
payment, but also any repairs that need to be done. It is cheaper for you going
into the deal if the property does not need any repairs, as this would add to
the out-of-pocket cost if you plan to fix things yourself.
Investing In Properties With No Equity
Lease Options do work well on
properties with little or no equity. There are nice houses everywhere that are
leveraged to the max and owned by sellers looking for a way out. Some real
estate agents will even turn a seller down if they don't have enough equity in
their house to pay the listing fee. The only solution would be for the seller
to come to closing with a check. Most sellers are very reluctant to do this and
would try to sell the home themselves, only to find
out that selling a home at full price wasn't as easy as they thought.
Properties To
Stay Away From
If you plan to do a Sub-Lease
Option, the properties you should probably stay away from would be two bedroom
houses because they are not as easy to find buyers for as houses with three
bedrooms or more are. You'll also want to stay away from lower end properties,
or properties in war zones, because you will most likely end up with
tenant/buyers who cannot qualify for a bank loan. This would mean that the
tenant/buyer would almost certainly not exercise their option.
You'll also want to stay away from
bank owned properties when it comes to doing Lease Options all together. Ninety
nine times out of a hundred, banks aren't going to want to deal with a Lease
Option. The bank took the house back once already and the last thing they want
to do is become your landlord. It's also not a good idea to try and create
seller financing with bank owned properties. While the bank may finance a
property they own, you probably wouldn't want the financing they would offer.
When dealing with banks, you get the best deals when you pay them
cash.
No Real Estate Agent Listings
Properties listed with real estate
agents are also not good candidates for Lease Options as well, for several
reasons.
First, you want to get into the deal
with as little money as possible and of course, the agent is looking to get
paid. This means that you would have to come up with their commission. Sure,
you could offer to pay the agent if-and-when you exercise your option, but this
is many times a complicated hassle that most agents don't like to get into.
Also, agents tend to try and protect
the seller they are representing. Therefore, many times they will try to shoot
holes all in your deal, especially if they see you are trying to control the
seller's property while putting little or no money down.
Lease Option With
Repairs
Earlier we said that you should look
for properties that need virtually no work and for the most part you will.
However, you can still Lease Option and then Sub-Lease Option properties that
need a fair amount of work, without ever doing any of the repairs yourself.
Advantages Of
Lease Optioning With Repairs
Let's take a look at some of the
advantages of Lease Optioning properties that need work.
Do More Deals Faster
First of all, you can do more deals
faster and with less hassle. Therefore, because the deal does not take up too
much of your time, you are able to do more deals.
No Dealing With
Repairmen
One of the reasons that the deal
won't take up as much of your time is mainly due to the fact that you won't be
spending a lot of time supervising or dealing with repairmen.
Have More Potential Buyers
You also don't have to wait for the
perfect buyer with a lot of money to put down and good or prefect credit.
Buyers with less than perfect credit and little or no down payment, many times
will be more than happy to do a little of the repair work for the opportunity
to own their own home. Realize that these buyers are not A+ buyers
and are not picky like an A+ buyer would be.
Less Holding Costs
Also, because you'll be selling the
deal faster and won't be getting slowed down by repairmen, you'll have fewer
holding costs. The fact that you don't have to come up with the money to pay a
repairman reduces your holding costs as well.
Make More Money
Because you have fewer expenses, you
can make more money as well.
The buyers that you will be dealing
with won't be as concerned about the price as they are about the down payment
and monthly payment. What is important to the buyer is that they get the
opportunity to own a home. Therefore, even though you might not be able to sell
the property for full price, your sales price won't be far from it. Again, what
is important is that the buyer can do the repairs and the amount of the down
payment and monthly payment work for the buyer.
Even though you will usually sell
the property for slightly below full retail, you can still make as much as
fifty percent more money than if you fixed the property up and retailed it.
This is mainly due to the fact that repair costs and holding costs eat up a lot
of your profit when doing a retail deal.
Get The
Property Back Needing Less Work
Finally, if the tenant/buyer does a
portion of the work and then bails out on you, you
get to take the property back with it
needing less work. This means you'll have an easier time getting the property
resold and you'll probably end up making more money in the long run.
Disadvantages Of
Lease Optioning With Repairs
The disadvantages of lease optioning
with repairs are that you may have to wait longer to get all of your money
because the property must be fixed up before it can be financed by most banks.
This means that it may take a year or more before you can get cashed out.
You also get less money down. Even
if the buyer has plenty of money to put down, the buyer will want to use some
of that money to do repair work. The money they put towards doing repairs is
that much less money you put in your pocket.
Advantages Of
Lease Options
There are of course a lot of
benefits to lease optioning properties, even when the property doesn't need
work. That is why Lease Options are very popular among investors today.
As an investor there are three
different positions you can be in.
- You can be the Seller (selling your own property),
- you can be the buyer (lease optioning from a home
owner), or
- you can be the investor in a
Sandwich Lease Option where you are sandwiched in between the owner and
your tenant-buyer.
Because there are advantages to
being in each of these three positions, we'll take separate look at each of
them.
- If you are simply a homebuyer, looking to buy a
property with no down payment, you will be mainly interested in the
advantages to the tenant-buyer only. However, it is a good idea to know
the advantages the seller gets so you can inform the seller of these
advantages when negotiating.
Advantages
To The Tenant/Buyer
- The first set of advantages
we're going to take a look at are the advantages to you as a homebuyer or
to your tenant-buyer if you are selling.
Sellers
Don't Have To Be Very Motivated
One of the biggest advantages when
Lease Optioning property, is that the sellers don't have to be very motivated.
They just need to be a little flexible.
Quick To Do
Lease Options are also very quick
when it comes to getting you into the home. If the house is vacant you can
actually start moving in the same day. This is due to the fact that you are
leasing the property and there is no closing until you exercise your option.
Control With
No Money Or Credit
You don't need credit or a lot of
money to put down to do a Lease Option either. The most money you should be
putting down is the first payment and even then, this first payment could be
due and payable when the next mortgage payment is due on the underlying loan.
The buyer has the right to occupy
the property and the seller does not have the right to sell the property to
another buyer. This gives the buyer a lot of control not only over who lives in
the property but whether or not the property can be sold.
Furthermore, the buyer is not
obligated to buy and can walk away if they decide at the end of their lease
term. A Lease Option only states that the tenant/buyer has the
"option" of buying. It does not state that the buyer will buy or has
to buy. This is different than an Agreement For Deed
which states that the buyer "is buying".
Rent Credits
Depending on how the Lease Option is
structured, the tenant/buyer could also build up equity while they are leasing.
This is because a portion of the monthly lease payment can be credited towards
the purchase of the property.
Refinancing A
Lease Option
Another key benefit is that the
tenant/buyer can refinance the Lease Option agreement as if it were a seller
held mortgage. As we said earlier, many banks will even let the tenant/buyer
get a refinance loan based on the actual value of the property and not on the
purchase price (if the value is higher than what they are purchasing the
property for). Most banks will also roll the closing costs into the loan.
Refinance loans are much easier to
qualify for because chances are, the Lease Option payment the tenant/buyer has
been making, is more than what their mortgage payment would be to a bank. This
carries a lot of weight with the bank when the tenant/buyer can show they have
the ability to pay consistently on time every month.
Future Discounting
As the tenant/buyer, the terms of
your Lease Option may be very favorable.
Therefore, there may not be much to
gain by refinancing. If the seller has money coming to them if you do
refinance, you may be able to talk the seller into taking an even lower price
in exchange for you refinancing sooner.
In fact, any time you can payoff
someone you owe early, you should ask for a discount.
Advantages To
The Seller
The next set
of advantages we're going to take a look at are the advantages to the seller
who actually owns the property. This may be yourself, selling your own
property, or this may be the seller that you are buying from. In either case,
it is important for you to know and understand these benefits.
More Potential Buyers
The biggest advantage to selling a
property under a Lease Option is that you have more potential buyers.
When selling a house, you are
looking for a qualified buyer. However, there are more people out there who
cannot qualify for a mortgage loan than there are those who can. These people
who cannot qualify for a loan do not have a lot of houses to choose from and
are very interested in buying a home under a "Rent To
Own" arrangement.
The right buyer is one who has the
money needed to put down and the ability to repair their credit (or build the
necessary credit), so that they can qualify for a bank loan. During the option
period, the tenant-buyer has time to repair or build their credit, save up for
a down payment, and even make repairs to your property if needed.
Don't forget,
the buyers that can qualify for a mortgage loan can still buy under a Lease
Option and the more you limit how much a buyer has to come up with, the more
buyers you will have as well.
No Title Transfer
You only deliver the deed when the
agreement has been fulfilled. This has many benefits within itself, including
easier remedies in the event of default and you can retain many of the tax
benefits of still owning the property.
No Due On Sale
Again, as we said earlier, because
the title has not transferred, a Lease Option does not give rise to the
due-on-sale clause if structured properly.
Eviction Rather Than Foreclosure
Lease Options also give the seller
more control in case of default by the tenant-buyer than if the seller had
given the buyer a seller held mortgage or Agreement For
Deed. This is not only due to the fact that the title has not transferred
yet, but also because a Lease Option creates a landlord-tenant relationship.
Under a Lease Option, you can evict
the tenant whereas under an Agreement For Deed, most
states require that you file a foreclosure, which is much more time consuming
and costly. Evictions, on the average, take thirty to forty-five days depending
on what part of the country you live in, whereas a foreclosure could take up to
six months or more.
It is important to remember that as
a tenant/buyer, it is much easier to talk a seller into doing a Lease Option
because of the fact that the seller can simply evict you in the event you don't
follow through.
Judgments Against Buyer Will Not Attach To
Property
Remember also, under a Lease Option,
the title to the property is not in the name of the buyer, therefore if the
buyer gets a judgment against them, the judgment will not attach to the
property.
Tax Advantages
The seller also retains the tax
benefits of owning the property. Because the property is technically still just
being leased, it is still a rental and can be depreciated on the owner's tax
return. The seller can also write off their taxes and insurance on their
mortgage. And lastly, the option money a
seller receives is tax deferred.
Advantages To
The Investor - Sub-Lease Options
The last set
of advantages we are going to take a look at are the advantages to the
investors under a sandwich lease. As an investor who Lease Options a property
from a seller, then sub-Lease Options to a tenant/buyer, you not only get both
the advantages as a buyer and a seller, but you also have other advantages as
being the investor in the middle of the sandwich Lease Option.
More Paydays
One of the best benefits of dealing
in Lease Options is that you have the multiple paydays we talked about earlier.
When flipping property wholesale,
you get one payday and it is usually in the amount of several thousand dollars
or more. But, when dealing in Lease Options you have multiple paydays, some of
which are dramatically larger than the payday you get when you just flip a
property. It is great to do a deal once and get paid several times.
By using Lease Options, you can keep
control of a property, have a monthly income, and later realize a profit when
you sell it.
You also realize immediate cash from
the tenant buyer’s option fee.
Future Discounting
One important payday is when your
tenant/buyer exercises their option and purchases the property. At that time,
you'll be paying off the seller, and where are you going to get the cash to pay
them off early? .. From your tenant-buyer who is
paying you off.
If the seller has any money corning to
them, it is a perfect opportunity to ask the seller for a discount if you pay
them off early. The important thing here about negotiating the discount with
the seller, is not to let the seller know that your tenant-buyer will be paying
them off anyway.
By getting the seller to discount in
exchange for the early payoff, only adds to your payday and creates additional
income for you.
Deal In Nice Properties
Best of all, when doing Lease
Options, you get to deal with nice houses, in nice areas, in beautiful
condition, and you get to deal with quality buyers. These will be houses you
would be willing to live in yourself.
Less Repair Work
Of course, because you're dealing in
nicer properties, there will be less repair work. Even if the property does
need work, you can reduce your repair work by having your tenant-buyer do some
of the minor things after you have repaired any major problems.
Avoid Seasoning Issues
There may come a time in which you
purchase a property outright and you decide you want to retail the property. By
only owning a property for a short period of time before you try to resell it,
you many times will run into what investors and mortgage brokers call a
"seasoning" problem when the new buyer applies for a bank loan. The
word "seasoning" simply means how long the title to the property has
been in your name.
The problem is, many banks don't
like to do loans on a property in which the seller recently purchased the
property for a lower price and is now reselling the property a couple of months
later for a higher price. While there is nothing wrong with buying a run down
property at a good price, and then fixing it and selling it for full value,
banks are not always comfortable knowing the property recently sold for a much
lower price than you are selling it for now. This is because banks think that
if they have to take the property back, the original lower sales price is an
indication of what they might get on the foreclosure market. Banks also don't
like to see investors making money at what they feel is their expense.
By doing a Lease Option, the extra
time you own the property during the lease period allows you to overcome these
"seasoning" issues with lenders.
Can Do A 1031 Tax Deferred Exchange
Lease Options also buy you more time
so that you can still do a 1031 Tax Deferred Exchange if you own the property
for eighteen months before the tenant/buyer exercises their option.
By Lease Optioning the property out
for the necessary eighteen months, you can save yourself from paying any
capital gains tax on the deal. Remember, a dollar saved is a dollar earned. If
you bought the property, owned it for a few months, and then retailed it, you
would not be able to do a 1031 Exchange.
You Have Multiple Exit Strategies
Another advantage to you as an
investor is that when you Lease Option a property from a seller, there are a
lot of things you can do with the deal.
· You can either keep the property as a
rental and not give the tenant an option to buy, or
· you can Lease Option the property to a
new tenant/buyer with a higher down payment, deposit, a higher monthly payment,
and a higher sales price.
· You also have the option of performing
any repairs needed and then retailing the property without sub-leasing it to a
tenant.
· Or you can keep the home for the
purpose of making it your residence without having to qualify for bank
financing or having to put any money down.
· You can even combine strategies by
purchasing a property "Subject To" and then reselling on a Lease
Option to your tenant-buyer.
Selling With Lease Options Vs. Renting Out Properties
If you like having the monthly cash
flow that comes from owning a rental, but you don't want the hassle of repairs
and dealing with tenants, you may want to consider Lease Optioning houses out
rather than doing straight rentals or straight retailing.
By doing so, you are basically
combining Rentals and Retailing into one.
By selling under a Lease Option, you
as the landlord avoid much of the hassles you would have if you had just made
the property a regular rental.
· You cut out a lot of the disadvantages
of being a landlord while at the same time, keeping almost (if not all) of the
advantages.
· Plus, Lease Optioning
has its own advantages that you can't get as a landlord, such as a higher up
front deposit that is nonrefundable.
· You can also get a higher monthly lease
payment, and the tenant/buyer takes care of the maintenance.
This means that tenants won't call
whenever they have a repair problem, the property appreciates, you get a cash
flow, the tenants pay down your loan for you, and you get the tax benefits of
depreciation. It just can't get much better than that!
Disadvantages Of
Lease Options
We have covered a lot of advantages
that come with doing Lease Options. So, there are bound to be some
disadvantages, yet there aren't very many.
No Ownership Yet
Of course, you don't yet own the
property in your own name when buying under a Lease Option. This isn't much of
a disadvantage because you do control the property. However, you don't get the
tax advantages that corne with ownership.
Judgments Against Seller
Furthermore, because the title to
the property is still in the seller's name, you do have a slim chance that the
seller might get sued and a judgment could attach to the property. If you feel
you have a seller that you should be concerned about, you can solve this
problem by having the seller put the property into a land trust.
Tenant/Buyers That Default
As a seller under a Lease Option,
you always have to consider that your tenant/buyer may not be able to qualify
for a bank loan. The tenant/buyer may not improve their credit and even if they
have somewhat good credit now, their credit situation may go down hill.
No mater what, you always have to plan for the tenant/buyer not being able to qualify, or if they walk away for one reason or another.